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 Ten-year U.S. Treasury yields <US10YT=RR>, the benchmark for
global borrowing costs, hit their highest since early December,
while German 10-year yields <DE10YT=TWEB> added 12 basis points to
0.71 percent.
Volatility in the bond markets weighed on stocks, adding to existing
investor anxiety over the perilous state of Greece's finances.
Shares in Europe and Asia fell and Wall Street was expected to
follow in their wake, index futures showed <ESc1>.
"It's a matter of concern for the market. When any particular asset
class goes through periods of extreme volatility in a short space of
time, people feel the pressure to take their risk exposure lower,"
Ian Richards, global head of equities strategy at Exane BNP Paribas,
said.
Less than a month ago German 10-year yields hit a record low of 0.05
percent, driven down by a 1 trillion euro European Central Bank
bond-purchase scheme intended to kick-start inflation.
Traders, who struggle to fully explain the recent yield surge, blame
it on a rise in inflation expectations, higher oil prices, and
restricted liquidity, caused by ECB purchases, as investors sought
to exit a crowded trade.
"It's clear that the market hasn't stabilized. Before the sell-off
started the common perception was one of low volatility. Now
investors are more cautious, asking for a premium for the volatility
we've seen recently," said Jan von Gerich, chief fixed income
analyst at Nordea.
Higher German yields lifted the euro <EUR=> 1 percent to $1.1265,
having fallen close to Monday's low of $1.1131 in Asian trade. It
was also up 0.9 percent at 135.02 yen <EURJPY=>.
The dollar index <.DXY>, which measures the U.S. currency against a
basket of major peers, fell 0.7 percent. The yen was 0.2 percent
higher at 119.88 per dollar.
U.S. 10-year yields, which have been driven higher in recent weeks
by German Bunds, last stood at 2.34 percent, up 7 basis points on
the day, their highest since late November.
Elevated U.S. yields mean higher corporate borrowing costs, which
could hit shares across the world.
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The pan-European FTSEurofirst 300 index <.FTEU3> fell 1.8 percent.
GREECE
Investors have also been concerned that debt-burdened Greece could
run out of cash. Euro zone finance ministers, who met on Monday,
acknowledged progress in talks between Greece and its creditors but
said more work was needed to close a cash-for-reforms deal. Athens
stocks <.ATG> lost 0.5 percent.
Worries that higher yields could drive the dollar higher weighed on
Japanese stocks. Tokyo's Nikkei <.N225> ended flat.
MSCI's main gauge of Asia-Pacific shares outside Japan
<.MIAPJ0000PUS> fell 0.4 percent. Chinese shares, however,
maintaining momentum after the central bank's weekend cut in
interest rates. The CSI300 index <.CSI300> rose 1.2 percent.
Oil prices, up more than 50 percent from their January lows, rose
further as dollar weakness trumped concerns about oversupply. Brent
crude <LCOc1> was up $1.40 cents at $66.32 a barrel.
Gold <XAU=> rose 1 percent to at $1,196.60 an ounce.
(Editing by Jeremy Gaunt)
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